History of the 6 Percent Commission
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The Greater Baton Rouge Business Report has an interesting story on real estate commissions. It discusses how the commissions came into being and what the future will bring. I was intrigued in this part of the article that told the history of the commission and how it compares to the rest of the world.
I would recommend reading the whole article, but if not read this section as it will give you some background when the real estate professional tells you that the 6 percent commission is mandatory.
The standard commission came into being in the 1940s, when local Realtor boards openly colluded on rates. In 1950, the U.S. Supreme Court declared this violated antitrust laws, so the Realtors adopted suggested fees. Department of Justice suits in the 1970s nixed that as well, so the Realtors made commissions implicit.
All the while, numerous studies have found average rates remained stable at about 6%.
Market pressures can budge rates slightly. One study by an economist from the University of Connecticut–which happened to examine Baton Rouge–found commissions drop 0.02 points, for example, for every $10,000 bump in price. There were similarly slight decreases in hot markets, and increases at large brokerages.
The only significant variance was on new houses, which depress commissions by about 0.6 points. That’s because brokerages typically give builders a one-point volume discount.
Meanwhile, research in the International Real Estate Review found commissions in most industrialized countries are around 3.5%.
Death of a sales commission - Greater Baton Rouge Business Report.
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